The Rise of Black Banks

Harvard University Press
8 min readFeb 6, 2019

When the Emancipation Proclamation was signed in 1863, the black community owned less than one percent of the United States’ total wealth. More than 150 years later, that number has barely budged. The Color of Money: Black Banks and the Radical Wealth Gap pursues the persistence of this racial wealth gap by focusing on the generators of wealth in the black community: black banks. Studying these institutions over time, Mehrsa Baradaran challenges the myth that black communities could ever accumulate wealth in a segregated economy. Instead, housing segregation, racism, and Jim Crow credit policies created an inescapable, but hard to detect, economic trap for black communities and their banks. Here is a look at the rise of The Binga State Bank in Chicago’s black belt.

The Great Migration, which lasted roughly from 1910 until 1970, radically transformed the country. During this seismic shift, approximately six million blacks left the south. In 1900, ninety percent of black Americans lived in the rural areas of Southern states. By 1970, 80 percent of black Americans lived in urban areas and nearly half outside the South. Blacks left the South because of racial injustice and the general decline of economic conditions below the Mason-Dixon line. They were pulled to the North by the promise of better jobs, better pay, and more opportunities for advancement.

Great northern cities swelled with black migrants and put them to work. The poet of the Harlem Renaissance, Langston Hughes, articulated the appeal of the northward migration:

The lazy, laughing South With blood on its mouth. The sunny-faced South,
And I, who am black, would love her But she spits in my face.
And I, who am black, Would give her many rare gifts But she turns her back upon me.
So now I seek the North — The cold-faced North, For she, they say,
Is a kinder mistress,
And in her house my children May escape the spell of the South.

It was easy to escape the South into the North’s booming economy and vibrant city life. Yet it was the “kinder mistress” that imposed systematic segregation and created the black ghetto. The North welcomed these migrants, but then quickly told them to proceed to Harlem and stay put. It was the kinder mistress’s ghettos that came to be called the “cities of destruction.”

The concept and terminology of a racial ghetto derives from the forced segregation of Jews in Europe — first in enclaves in the seventeenth century and then with barbed wire during the Nazi regime. There was no barbed wire in America’s black ghettos, but even more effective modes of containment through racial covenants and government credit and zoning policies that maintained the boundaries of the ghetto. Often referred to as black enclaves, black neighborhoods, or other racially neutral descriptions, the word ghetto is a much more accurate descriptor because it captures the involuntary nature of segregation. The ghetto was created by white racism, which in turn generated a complex web of interrelated social, political and economic challenges. Blacks were forced into a parallel and inferior economy simply because whites in the north would not accept them as neighbors. This had profound effects on African American economic advancement for the next century. Black racial segregation was so complete and so entrenched, that it is the defining characteristic of racial inequality in the twentieth-century and the major roadblock to economic progress.

The first wave of the Great Migration from 1910 to 1930 coincided with the height of discriminatory segregation and the golden era of black banking. These developments were correlated in important ways: the surge of migrants entering cities of the north triggered racial animosity and housing segregation, which in turn created a separate and parallel economy and in time, a thriving black banking sector. From 1900 until 1934, some 130 black banks came into being, 88 of which were formed between 1900 and 1928. This did not include approximately 50 savings and loans and credit unions formed by blacks during this time. The resources of these institutions grew steadily, but the most robust expansion of black banking came from 1918 to 1929. The peak year of black banking came in 1926, when total assets held by these institutions reached roughly $13 million (this was still only 0.2 percent of all U.S. bank assets).

Wherever African American populations could be found, black banks flourished to meet both the opportunities and challenges of a segregated economy. Concentrated populations of black wage workers proved to be a bounty for the black banks. But that same concentration also created special vulnerabilities. These banks were created by the same forces that worked against them at every turn — a segregated economy held the seeds of its own destruction. There would be many bank failures in due time, but not before some of these institutions had cemented their place in history as the pioneering giants of black finance. The 1920s roared for black banks too, but these machines were never able to perform the magic of banking that is the multiplication of capital through fractional reserve lending. As well, the bust following the boom would last much longer for black commercial institutions and their customers.

Chicago’s black belt, the most segregated black ghetto, was also the center of black banking in the North. Philadelphia, Washington D.C., and Boston were homes to several black-owned banks, but these institutions were far smaller than the banks of Chicago. The “titans of black finance” in the north were both located in Chicago: The Binga State Bank and the Douglass National Bank. At their peak in 1928, they controlled almost one-third of the combined resources of all black banks in the country. Most observers viewed these two banks as the best managed and strongest of all the black banks and as models for successful commercial banking in the black economy.

Jesse Binga was born in Detroit in 1865. His father was a barber and his mother, who was Binga’s inspiration throughout his life, created a food shipping business while dabbling in real estate development. Binga was one of ten children and the family lived on limited means. He briefly practiced law, but would make his mark as a businessman. He moved to Chicago’s black belt district and opened a real estate business in 1896. The Chicago real estate market was in a state of rapid change as blacks migrated in to the city and whites moved out. The industrious Binga found a way to profit from segregation and neighborhood turnover by buying houses at below-market rates from whites desperate to sell, fixing them up and selling them to black buyers. Binga ran an advertisement in the Tribune in 1905: “WANTED — OWNERS, SOUTH SIDE — QUICK returns; if you desire to sell to reliable colored people submit your property for sale.”

Binga was viewed by his community as a fair and beloved businessman, setting him apart from the droves of exploitative contract sellers and loan sharks that would dominate the real estate market in Chicago in the next epoch. Binga quickly became Chicago’s top black real estate broker because he did the buying and selling as well as the fixing up. “I could do the repair work myself. I could do everything from digging a posthole to topping a chimney.” He explained that his greatest asset in business was exploiting the discrimination of white businessmen. “It was partly the disposition of the average white man to underestimate my knowledge of real estate values. They wouldn’t believe that a colored man could take almost any old building and whip it into shape.”

Just as discrimination and white flight led to his real estate success, he turned the white banks’ refusal to lend to his real estate clients into another source of profit. When the white-owned McCarthy Bank on 35th and State failed in 1907, Binga purchased the building and chartered “Binga State Bank.” In 1911, the Defender called Binga “Our Only Banker” and lauded his accomplishments, stating, “He was the pioneer in securing good houses and flats for the race and the beginning of his remarkable business along that line has been one of the main factors in the wonderful growth of the citizens of color in Chicago.” Another black business leader called Binga’s Bank “one of the leading banks owned and operated by Negroes anywhere.”

Binga’s bank deposits grew from $300,000 to over $1.1 million between 1921 and 1924. During that same time period, Binga bought a prominent home in a white neighborhood near Washington Park. His purchase drew ire and triggered violence. During the race riots of 1919, his house was bombed seven times. Each time, the bomber left a note demanding that Binga leave the property and sell it to a white buyer. Binga was resolute. “I will not run. The race is at stake and not myself. If they can make me move they will have accomplished much of their aim because they can say, ‘We made Jesse Binga move; certainly you’ll have to move’ to all the rest. If they can make the leaders move, what show will the small buyers have?” Binga claimed that it was his right as a proud American to defend his home, life, and liberty.

Binga’s bank was consistently more capitalized than what was required by the Illinois State Charter and his bank was held out by black and white contemporaries as a model of sound banking. Binga also bought a membership into the Chicago Clearinghouse, through which top banks paid into a fund used to rescue the member banks when they needed emergency liquidity during a run or a downturn. Before the Federal Reserve was founded in 1913 to offer similar protection, top bankers joined such funds, paying dues that would be set aside to help them in a liquidity crisis. The Chicago fund saved many banks from failure, and Binga’s bank was the only black bank granted membership. As Binga would later find out, however, fair dealing with this elite group was not reciprocated.

In 1926, Binga’s bank, located in the center of the black belt, was the most expensive property in the district, valued at $120,000. He owned over $500,000 in other real estate as well. On the eve of the Great Depression, Jesse Binga, sixty-four years old and at the height of his success, began collecting capital to start a second bank. Binga’s unparalleled success made him a storied leader in the black community, and so the funds flowed in. The 1929 stock market crash, however, shattered his plans. By the end of the year, Binga’s bank became the “canary in the coal mine” for bank failure in Chicago. His bank was the first in Chicago to fail during the Great Depression.

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